Five years ago, Yahoo! (NASDAQ: YHOO) invested its China business and $1 billion in cash for a 39% stake in Alibaba.com, China’s largest e-commerce company. Reuters quotes Carol Bartz, Yahoo!’s CEO, as saying that Alibaba “constantly” offers to repurchase that stake. The latest rumor was that it offered $11 billion for Yahoo!’s stake. At yesterday’s closing share price of $14.27 for Yahoo!, the company’s stake in Alibaba comprises 57% of Yahoo’s market cap.
No wonder Yahoo!’s CEO is just saying no. But if she’s telling the truth about the constant offers, it shouldn’t be long before investors start putting some pressure on Yahoo! to do the deal. Investors with good memories remember when Yahoo!’s former CEO rejected an offer of $33 a share from Microsoft (NASDAQ: MSFT) that valued Yahoo! at more than $45 billion, more than double today’s market cap. Microsoft’s later 10-year search deal with Yahoo! gave the Redmond company all it really wanted anyway, without having to spend all that cash.
Yahoo!’s deal with Microsoft has put the company’s search business on solid footing, and now Bartz is predicting that search advertising rates will rise in the middle of next year, especially in video ads which she claims are “always sold out” at Yahoo!.
Where Yahoo!, and Microsoft, don’t yet compete is in the market for mobile advertising. Apple
(NASDAQ: AAPL) and Google (NASDAQ: GOOG) are the big players in a relatively small market that Bartz dismisses. Referring to Apple’s iAds network she says, “That’s going to fall apart for them. Advertisers are not going to have that type of control over them. Apple wants total control over those ads.”
She may have a point. Apple rolled out its iAd service on July 1 with 17 launch partners. Only five have launched iAd campaigns, partly because Apple has maintained very close control on the creation of the ads, according to The Wall Street Journal. The iAd platform allows advertisers to deliver interactive ads inside an app without users having to exit the app.
Apple has yet to release a developer kit for iAd and produces all the ads itself. Advertisers aren’t used to this, and complain about the long time it takes to build an ad and about the inability of the advertisers to insert their own measurement devices inside ads created by Apple. Apple also controls where the ads will appear. It’s pretty clear that the Cupertino crowd has not figured out how to deal with ad agencies yet.
Despite what Bartz thinks about the future of mobile advertising, the field is set to grow to over a $1 billion by 2012, according to some analysts. Mobile ads will start slowly, as did Web advertising, but it will grow, and maybe even faster than predicted.
